As far as businesses are concerned, money is the most crucial factor in determining its success. This is why most businesses depend on loans to take their business one step ahead. Business loans can be further divided into long term loans and short term loans. While choosing between the two, one should consider several key factors. When one thinks of loan, the first thing that comes in the mind is repayment. So, it is quite obvious for people to consider loan amount and interest rate before applying for a loan. However, there are several other key factors such as credit scores, lender experience, and any potential impacts on your personal credit that should be taken into account before deciding on any business loan. The following discussion will help in understanding long vs short term loans.
Long term business loans:
As the name suggests, this type of loan offers a long term for repayment typically in the range of 10 to 20 years. These are designed to meet long term financial needs of a business.
Short term business loans:
These loans are applicable for immediate needs and are repaid within months. This type of loan is used in situations where immediate benefit is felt. Also, the loan can be paid off much faster and you don’t have to stress about it for years.
Pros And Cons:
As every coin has two sides, both these loans have their own benefits and drawbacks. Let’s take a look at the pros and cons of each.
Pros of long term business loans:
- More loan amount: If you need a loan for a financial activity costing you several thousand dollars, it is likely that the long term loan will be approved for the whole amount.
- Lower interest rates: Since, you get several years to repay the amount, monthly repayment amounts aren’t too high.
Cons of long term business loans:
- More loan amount means more hassle in the processing.
- Collateral or other additional requirements tend to be met.
- Businesses or owners with poor credit history cannot avail the loan.
Pros of short term business loans:
- More flexible.
- Hassle-free processing.
- Quick approval.
- Since it is paid off within few months, you don’t end up paying huge amount as interest.
Cons of short term business loans:
- High interest rates: Since the amount has to be repaid within few months, high interest rates are charged.
- Limited loan amount.
The type of business loan one should choose totally depends on the business situation they are in. The requirements may vary from person to person. But understanding long vs short term loans can surely help an individual to make the right decision. Evaluate all the terms and make the right choice.